The financial statements of Midwest Tours are given below.
Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm’s P/E ratio for 2009 is
A. 4.74.
B. 6.63.
C. 5.21.
D. 5.00.
The hedge ratio of an option is also called the option’s
A. alpha.
B. beta.
C. sigma.
D. delta.
E. rho.
You want to purchase GM stock at $40 from your broker using as little of your own
money as possible. If initial margin is 50% and you have $4,000 to invest, how many
shares can you buy?
A. 100 shares
B. 200 shares
C. 50 shares
D. 500 shares
E. 25 shares
A year ago, you invested $1,000 in a savings account that pays an annual interest rate of
9%. What is your approximate annual real rate of return if the rate of inflation was 4%
over the year?
A. 5%
B. 10%
C. 7%
D. 3%
At freshman orientation, 1,500 students are asked to flip a coin 20 times. One student is
crowned the winner (tossed 20 heads). This is most closely associated with
A. regret avoidance.
B. selection bias.
C. overconfidence.
D. the lucky event issue.
You are given the following information about a portfolio you are to manage. For the
long term, you are bullish, but you think the market may fall over the next month.
What is the dollar value of your expected loss?
A. $142,900
B. $16,670
C. $85,700
D. $30,000
E. $64,200
Behavioral finance argues that
A. even if security prices are wrong, it may be difficult to exploit them.
B. the failure to uncover successful trading rules or traders cannot be taken as proof of
market efficiency.
C. investors are rational.
D. even if security prices are wrong, it may be difficult to exploit them and the failure
to uncover successful trading rules or traders cannot be taken as proof of market
efficiency.
E. All of the options are correct.
Which one of the following portfolios cannot lie on the efficient frontier as described by
Markowitz?
A. Only portfolio W cannot lie on the efficient frontier.
B. Only portfolio X cannot lie on the efficient frontier.
C. Only portfolio Y cannot lie on the efficient frontier.
D. Only portfolio Z cannot lie on the efficient frontier.
E. Cannot be determined from the information given.
Which of the following orders instructs the broker to buy at or above a specified price?
A. Limit-buy order
B. Discretionary order
C. Limit-sell order
D. Stop-buy order
E. Market order
Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20
each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger.
Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The
corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat
hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.
If the economy enters a recession, the total revenue of firm C will be
A.-$1,680,000.
B. $1,400,000.
C. $2,000,000.
D. $0.
E. None of the options are correct.
A preferred stock will pay a dividend of $7.50 in the upcoming year and every year
thereafter; i.e., dividends are not expected to grow. You require a return of 10% on this
stock. Use the constant growth DDM to calculate the intrinsic value of this preferred
stock.
A. $0.75
B. $7.50
C. $64.12
D. $56.25
E. None of the options are correct.
Ceteris paribus, a decrease in the demand for loans
A. drives the interest rate down.
B. drives the interest rate up.
C. might not have any effect on interest rates.
D. results from an increase in business prospects and a decrease in the level of savings.
You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your
gains may be protected by placing a
A. stop-buy order.
B. limit-buy order.
C. market order.
D. limit-sell order.
E. None of these options are correct.
The securities act of 1933 I) requires full disclosure of relevant information relating to
the issue of new securities.
II) requires registration of new securities.
III) requires issuance of a prospectus detailing financial prospects of the firm.
IV) established the SEC.
V) requires periodic disclosure of relevant financial information.
VI) empowers SEC to regulate exchanges, OTC trading, brokers, and dealers.
A. I, II, and III
B. I, II, III, IV, V, and VI
C. I, II, and V
D. I, II, and IV
E. IV only
As diversification increases, the unique risk of a portfolio approaches
A. 1.
B. 0.
C. infinity.
D. (n – 1) × n.
Consider the following:
Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$, convert
the proceeds to U.S. dollars, and invest them in the U.S. at the risk-free rate. You
simultaneously enter a contract to purchase 170,340 A$ at the current futures price
(maturity of 1 year). What would be your profit (loss)?
A. Profit of 630 A$
B. Loss of 2300 A$
C. Profit of 2300 A$
D. Loss of 630 A$
The following is a list of prices for zero-coupon bonds with different maturities and par
values of $1,000.
What is the price of a 4-year maturity bond with a 12% coupon rate paid annually? (Par
value = $1,000.)
A. $742.09
B. $1,222.09
C. $1,000.00
D. $1,141.92
E. None of the options are correct.
Assume that you purchased shares of High Flying mutual fund at a net asset value of
$12.50 per share. During the year, you received dividend income distributions of $0.78
per share and capital gains distributions of $1.67 per share. At the end of the year, the
shares had a net asset value of $13.87 per share. What was your rate of return on this
investment?
A. 29.43%
B. 30.56%
C. 31.19%
D. 32.44%
E. 29.18%
One outcome from the SEC investigation of the “Flash Crash of 2010” was
A. a prohibition of short selling.
B. higher margin requirements.
C. approval of new circuit breakers.
D. establishment of electronic communications networks (ECNs).
E. passage of the Sarbanes-Oxley Act.
The likelihood of an investment newsletter’s successfully predicting the direction of the
market for three consecutive years by chance should be
A. between 50% and 70%.
B. between 25% and 50%.
C. between 10% and 25%.
D. less than 10%.
E. greater than 70%.
Other things equal, diversification is most effective when
A. securities’ returns are uncorrelated.
B. securities’ returns are positively correlated.
C. securities’ returns are high.
D. securities’ returns are negatively correlated.
E. securities’ returns are positively correlated and high.
Assume that at retirement you have accumulated $750,000 in a variable annuity
contract. The assumed investment return is 9%, and your life expectancy is 25 years.
What is the hypothetical constantbenefit payment?
A. $30,000.00
B. $33,333.33
C. $51,481.38
D. $76,354.69
E. The answer cannot be determined from the information provided.
You want to evaluate three mutual funds using the Sharpe measure for performance
evaluation. The risk-free return during the sample period is 4%. The average returns,
standard deviations, and betas for the three funds are given below, as are the data for the
S&P 500 Index.
The fund with the highest Sharpe measure is
A. Fund A.
B. Fund B.
C. Fund C.
D. Funds A and B (tied for highest).
E. Funds A and C (tied for highest).
A portfolio manager’s ranking within a comparison universe may not provide a good
measure of performance because
A. portfolio returns may not be calculated in the same way.
B. portfolio durations can vary across managers.
C. if managers follow a particular style or subgroup, portfolios may not be comparable.
D. portfolio durations can vary across managers and if managers follow a particular
style or subgroup, portfolios may not be comparable.
E. All of the options are correct.
When a distribution is positively skewed,
A. standard deviation overestimates risk.
B. standard deviation correctly estimates risk.
C. standard deviation underestimates risk.
D. the tails are fatter than in a normal distribution.
The __________ index is a widely used index of non-U.S. stocks.
A. CBOE
B. Dow Jones
C. EAFE
D. All of the options are correct.
E. None of the options are correct.
A finding that _________ would provide evidence against the semistrong form of the
efficient-market theory.
A. low P/E stocks tend to have positive abnormal returns
B. trend analysis is worthless in determining stock prices
C. one can consistently outperform the market by adopting the contrarian approach
exemplified by the reversals phenomenon
D. low P/E stocks tend to have positive abnormal returns and trend analysis is worthless
in determining stock prices
E. low P/E stocks tend to have positive abnormal returns and one can consistently
outperform the market by adopting the contrarian approach exemplified by the reversals
phenomenon
Consider the following $1,000-par-value zero-coupon bonds:
The yield to maturity on bond A is
A. 10%.
B. 11%.
C. 12%.
D. 14%.
E. None of the options are correct. ($1,000 $909.09) $909.09 = 10%.
Consider the single-index model. The alpha of a stock is 0%. The return on the market
index is 16%. The risk-free rate of return is 5%. The stock earns a return that exceeds
the risk-free rate by 11%, and there are no firm-specific events affecting the stock
performance. The β of the stock is
A. 0.67.
B. 0.75.
C. 1.0.
D. 1.33.
E. 1.50.
You are given the following information about a portfolio you are to manage. For the
long term, you are bullish, but you think the market may fall over the next month.
How many contracts should you buy or sell to hedge your position? Allow fractions of
contracts in your answer.
A. sell 1.714
B. buy 1.714
C. sell 4.236
D. buy 4.236
E. sell 11.235
You buy one Home Depot June 60 call contract and one June 60 put contract. The call
premium is $5 and the put premium is $3.
Your maximum loss from this position could be
A. $500.
B. $300.
C.$800.
D. $200.
E. None of the options are correct.